Blockchains are secured by various mechanisms, including advanced cryptographic techniques and mathematical models of behavior and decision-making. Blockchain technology is the basic structure of most cryptocurrency systems and prevents this type of digital currency from being duplicated or destroyed.

The use of blockchain technology is also being explored in other areas where data immutability and security are extremely valuable. Some examples include recording and tracking of charitable donations, medical databases, and supply chain management (traceability).

However, blockchain security is far from a simple subject. Therefore, it is important to understand the basic concepts and mechanisms that ensure effective protection of these innovative systems.


The concepts of immutability and consensus

Although there are many features that play into the security associated with blockchain, two of the most important are the concepts of consensus and immutability. Consensus refers to the ability of nodes within a distributed blockchain network to agree on the true state of the network and the validity of transactions. Generally, the process of reaching consensus depends on so-called consensus algorithms.

Immutability, on the other hand, refers to the ability of blockchains to prevent the alteration of already confirmed transactions. Although these transactions often involve the transfer of cryptocurrencies, they can also refer to the recording of other forms of non-monetary digital data.

The combination of consensus and immutability forms the framework for data security within blockchain networks. Although consensus algorithms ensure that system rules are followed and all parties involved agree on the current state of the network, immutability ensures the integrity of data and transaction records after confirming the validity of each new data block.


The role of cryptography in blockchain security

Blockchains rely largely on cryptography to ensure the security of their data. An extremely important cryptographic function in such a context is that of hashing. Hashing is a process by which an algorithm called a hash function receives data input (of any size) and returns a determined output containing a fixed length value.

No matter how big the input is, the output will always be the same length. If the input changes, the output will be completely different. However, if the input does not change, the resulting hash will always be the same, no matter how many times you run the hash function.

In blockchains, these output values, called hashes, are used as unique identifiers for blocks of data. The hash of each block is generated relative to the hash of the previous block, and this is what connects the blocks together, thus forming a chain of blocks. Additionally, the block hash depends on the data contained in that block, which means that any changes to the data will also require a change to the block hash.

Therefore, the hash of each block is generated based on the data contained in that block and the hash of the previous block. These hash identifiers play a key role in the security and immutability of blockchains.

The hash is also exploited by consensus algorithms used to validate transactions. On the Bitcoin blockchain, for example, the Proof of Work (PoW) algorithm used to achieve consensus and to mine new coins uses a hash function called SHA-256. As the name suggests, SHA-256 takes a data input and returns a 256-bit or 64-character hash.

In addition to ensuring the protection of transaction records on ledgers, cryptography also plays a role in the security of wallets used to store cryptocurrency units. The coupled public and private keys that respectively allow users to receive and send payments are then created through the use of public key or asymmetric cryptography. Private keys allow digital signatures to be generated for transactions, which helps authenticate ownership of the coins being sent.

While these specifics are beyond the scope of this article, the nature of asymmetric cryptography prevents any holder other than the private key holder from accessing funds stored in a cryptocurrency wallet, thus keeping those funds secure until whatever the owner decides to spend them on (as long as the key is not shared or compromised).


Cryptoeconomics

In addition to cryptography, a relatively new concept called cryptoeconomics also plays a role in maintaining the security of blockchain networks. It is related to a field of study called game theory, which mathematically models decision-making by rational actors in situations with predefined rules and rewards. While traditional game theory can be broadly applied to a large number of cases, cryptoeconomics specifically models and describes the behavior of nodes on distributed blockchain systems.

In summary, cryptoeconomics is the study of the economics within blockchain protocols and the possible outcomes their model can bring based on the behavior of its participants. Security through cryptoeconomics is based on the notion that blockchain systems provide greater incentives for nodes to act honestly rather than engage in malicious or wrongful behavior. Once again, the Proof of Work consensus algorithm used in Bitcoin mining provides a good example of this incentive structure.

When Satoshi Nakamoto created the framework for Bitcoin mining, he intentionally designed it to be a costly and resource-intensive process. Due to its complexity and computational requirements, PoW mining involves a considerable investment of money and time, regardless of the location and location of the mining node. Therefore, such a structure strongly deters malicious activities and significantly incentivizes honest mining activities. Dishonest or inefficient nodes will be quickly kicked out of the blockchain network, while honest and efficient miners will have the opportunity to obtain large block rewards.

Additionally, this balance of risks and benefits also protects against potential attacks that could compromise consensus by placing a majority hash rate of a blockchain network in the hands of a single group or entity. Such attacks, called 51% attacks, could be extremely damaging if executed successfully. But due to the competitiveness of Proof of Work mining and the scale of the Bitcoin network, the likelihood of a malicious actor taking control of a majority of nodes is extremely minimal.

Furthermore, the cost in computing power required to gain 51% control of such a large blockchain network would be astronomical, which immediately discourages embarking on such an investment for a relatively small potential reward. This aspect highlights a characteristic of blockchains known as the “Byzantine Generals Problem” or Byzantine Fault Tolerance (BFT), which is essentially the ability of a distributed system to continue functioning normally even if some of its nodes are compromise or act maliciously.

As long as the cost of establishing a majority of malicious nodes remains prohibitive and there are better incentives for honest activity, the system will be able to thrive without significant disruption. It should be noted, however, that smaller blockchain networks are certainly more susceptible to majority attacks, as the total hash rate devoted to these systems is considerably lower than that of Bitcoin.


To conclude

Through the combined use of game theory and cryptography, blockchains are able to achieve high levels of security as distributed systems. As with almost all systems, however, it is essential that these two areas of expertise are properly integrated. A delicate balance between decentralization and security is indeed essential for the establishment of a reliable and efficient cryptocurrency network.

As blockchain uses continue to evolve, their security systems will also adapt to meet the needs of different uses. The private blockchains being developed for businesses, for example, rely much more on security through access control than on the game theory (or cryptoeconomics) mechanisms essential to the security of most public blockchains.